Nokia acquires Infinera in $2.3 billion deal to tap into AI-driven data center boom

Nokia announced on Thursday it has agreed to acquire U.S.-based optical networking gear maker Infinera Corp in a deal valued at $2.3 billion to bolster its optical network business and tap into an AI-fueled data center boom. This strategic acquisition positions Nokia to capitalize on the burgeoning investments in data centers driven by the surge in artificial intelligence.

With this bid to acquire the U.S.-based optical networking gear maker, the Finnish tech giant aims to capitalize on the burgeoning investments in data centers driven by the rise of artificial intelligence. Telecom equipment manufacturers, facing declining 5G equipment sales, are increasingly looking to diversify into high-growth areas like AI.

Nokia’s acquisition will also enable the company to expand its sales to major tech companies such as Amazon, Alphabet, and Microsoft, which are heavily investing in new data centers to support the AI boom.

“This acquisition is timely, coming just before the market is expected to recover,” said Nokia CEO Pekka Lundmark in an interview with Reuters. “AI is driving significant investments in data centers, and this deal significantly increases our exposure to that sector,” he added.

Data centers rely on optical transport networks, which use glass cables to transmit digital signals, facilitating communication between electronic devices. Lundmark further explained that Infinera is particularly strong in intra-data center communications, a rapidly growing segment within the communications technology market.

Following the announcement, Nokia shares rose 4% in morning trading, indicating shareholder confidence in the deal. Typically, acquiring companies see a drop in share price due to dilution in cash-and-stock deals. Infinera’s shares also surged nearly 22% following the announcement.

Analyst Mads Rosendal from Danske Bank Credit Research noted that while the purchase multiple may seem steep due to Infinera’s inconsistent growth, the anticipated 200 million euros in synergies would justify the price. Infinera generates about 60% of its revenue from the U.S., whereas Nokia has a stronger presence in Europe and Asia, making this a complementary transaction, Lundmark told Reuters.

“The combined businesses have sales of over 2 billion euros and operating expenses exceeding a billion euros, so achieving the 200 million euros target is feasible,” Lundmark stated, though he refrained from commenting on potential layoffs.

This acquisition will also enable Nokia to surpass Ciena and become the second-largest vendor in the optical networking market with a 20% market share, trailing only Huawei, which benefits from the limited presence of Western companies in China.

The acquisition is expected to boost Nokia’s comparable earnings per share within the first year post-closure and increase profits by over 10% by 2027. Infinera, based in San Jose, California, manufactures optical semiconductors and networking equipment for both fixed-line and mobile telecommunications networks.

According to the acquisition agreement, Nokia will finance 70% of the purchase price in cash and the remaining 30% in stock, aiming to achieve cost savings of 200 million euros ($213.88 million) after the deal closes next year.

The deal’s price of $6.65 per share represents a 26.4% premium over Infinera’s closing price of $5.26 on Thursday. Infinera shareholders can opt to receive up to 30% of the consideration in Nokia’s American Depositary Shares, with the remaining 70% paid in cash.

This is Nokia’s second optical networking company acquisition in recent years. In 2020, Nokia acquired New York-based tech company Elenion Technologies to boost its optical networking capabilities and expand its offerings to telecom operators. The financial details of the Elenion acquisition were not disclosed.